Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Historically, Eagle Bancorp Montana, Inc. (NASDAQ:EBMT) has paid dividends to shareholders, and these days it yields 2.2%. Let’s dig deeper into whether Eagle Bancorp Montana should have a place in your portfolio.
5 checks you should do on a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
- Is it paying an annual yield above 75% of dividend payers?
- Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
- Has dividend per share risen in the past couple of years?
- Does earnings amply cover its dividend payments?
- Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
Does Eagle Bancorp Montana pass our checks?
The company currently pays out 47% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is covered by earnings. However, going forward, analysts expect EBMT’s payout to fall to 21% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 2.3%. However, EPS should increase to $1.41, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. Dividend payments from Eagle Bancorp Montana have been volatile in the past 10 years, with some years experiencing significant drops of over 25%. These characteristics do not bode well for income investors seeking reliable stream of dividends.
In terms of its peers, Eagle Bancorp Montana has a yield of 2.2%, which is on the low-side for Banks stocks.
If you are building an income portfolio, then Eagle Bancorp Montana is a complicated choice since it has some positive aspects as well as negative ones. However, if you are not strictly just a dividend investor, the stock could still offer some interesting investment opportunities. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. There are three pertinent aspects you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for EBMT’s future growth? Take a look at our free research report of analyst consensus for EBMT’s outlook.
- Valuation: What is EBMT worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether EBMT is currently mispriced by the market.
- Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.